Exam 1 Flashcards
Supply chain consists of multiple types of flow, name the 3
information, product, and financial
Stages of a supply chain:
supplier, manufacturer, distributor, retailer, custome
why are supply chain decisions important
Competitiveness requires an ability to adapt to changing technology and customer needs and desires
what is the objective of a supply chain
to maximize the overall value
what is a performance measure for a supply chain
return on investment = (net profit)/(net assets)
In a supply chain what affects net profit (numerator)
product sales, overhead, direct labor, freight, taxes and customs
in a supply chain what affects net assets
inventory
the stock of any item in an organization
inventory
a specific unit of stock to be controlled in an inventory system
stock-keeping unit
When a supplier sets up a production line or a
distributor makes a shipment or a customer makes a
purchase, there is typically a fixed cost associated
with the setup or the shipment or the purchase.
Hence, the production or shipment or purchase lot
size can be larger than the immediate demand and
what is not immediately needed is kept in inventory.
economies of scale
if a supply shortage or a price increase is anticipated, then inventory can be kept
speculation
In such cases, the supplier starts production
before the planned release date and builds inventory
to meet the demand at product launch
smoothing
procurement
what you pay to procure the item
is the time the duration that elapses between the time when the procurement/production order is placed until when the order is received
lead time
dictates how frequently the inventory status is checked
inventory review scheme
MA: the inventory level is reviewed on a blank a basis
continuous
the planning horizon is blank and the demand parameter will continue to be at the blank value throughout this planning horizon
infinite, same
the demand rate is blank and blank, and arrives at a blank rate over time
known, continuous, constant
although the item of interest can be an item in a larger inventory system, it is treated entirely independently of other items
single item
the blank parameters do not change over time. in particular, inflation rate is low
cost
the unit variable purchase cost is blank and does not depend on order quantity
constant
the order delivery lead time is blank
zero
no blank are allowed, the demand must be satisfied
shortages
Trade-off between the fixed order cost and variable inventory holding cost
EOQ
lambda
demand rate (units/unit time)
K
fixed order cost ($/order0
c
unit variable purchase cost ($/unit)
h
unit inventory holding cost ($/unit/unit time)
q
order quantity (units)
T
length of the inventory cycle (unit time)
C(q)
average total cost per unit time ($/unit time)
(total cost per cycle)/(cycle length)
C(q)
when you take the first derivative of C(q), what do you get
annual ordering cost = annual inv. holding cost
the reflection of the firm’s capabiltiy to contribute to the wealth of its shareholders by paying dividends
shareholder value
what are the 2 types of fixed cost that a company can incur
ordering cost or setup cost
Why might a company order from the supplier in bulk
the order cost is incurred regardless of the size of the order. Therefore, it may be more economical to order a large number of items in each order cycle
includes all the expenses associated with placing an order
procurement costs
demand is know with certainty
deterministic
demand has uncertainties associated with it
stochastic
2 problems when there is excess demand
back orders and lost of sales
the time that elapses from the time at which we receive q units until the time the inventory level drops to zero and we order and receive q units again
inventory cycle
formula to determine the length of an inventory cycle
T=q/lambda
what are three costs incurred in the total cost per inventory cycle
Ordering cost, inventory purchasing cost, inventory holding cost
since the entire demand has to satisfied, this term corresponds to the cost of doing business. Independent of the inventory policy, the purchasing cost for the entire demand lambda has to be incurred
c times lambda
Suppose it takes 2 days for the order to be processed and 1 day for the coffee beans to
be delivered from Atlanta to Gainesville. How does this change the EOQ model?
if the assumption that the entire demand must be satisfied holds, then an order must be placed at a specific time to ensure the arrival of the order in a timely manner
What would happen if the price of the coffee beans changed with order size?
Since the basic
EOQ model relies on the assumption that the unit cost does not change with the order
size, this aspect has to be taken into account explicitly.
Suppose that the store managers also order packaged baked goods (such as biscotti)
and other items (such as Starbucks coffee mugs) from the distribution center. Is there
a benefit in combining the coffee bean orders with these orders?
The basic EOQ model relies on the basic assumption that the entire fixed ordering cost
is associated with the item of interest. In several practical settings, however, multiple
items may share the fixed cost
When is an EOQ value realizable?
Consider a value of the unit procurement cost with the corresponding price- break points. If the EOQ value that corresponds to this particular procurement cost fals between the price-break points within which the unit procurement cost is valid, then the EOQ value is realizable
if the order size exceeds the break-point quantity then the discount rate is applied to all units of the order
All units discount
if the order size exceeds the break-point quantity then the discount rate is applied only to those units that are beyond the breakpoint
incremental discount
the order quantity obtained under a finite replenishment rate is also referred to as
the economic production quantity
what is the main difference when the replenishment rate is finite
when the replenishment rate is finite, we do not receive q units immediately
What is the sweetspot in an EOQ model
where the average total cost per unit time is minimized
if the demand during lead time is less than quantity
an order has to be placed in the previous period
if the demand during lead time is greater than the quantity
an order has to be placed several previous period ahead
